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Ship operating costs decline for seventh year in succession

23 September 2019

Total annual operating costs in the shipping industry fell by an average of 1.8% in 2018, compared to the 1.3% fall for 2017, according to OpCost 2019, BDO’s unique ship operating costs benchmarking tool. All categories of expenditure in 2018 were down overall on those for the previous 12-month period, with the exception of repairs and maintenance costs. 

Total operating costs for the tanker, bulker and container ship sectors were all down in 2018, the financial year covered by the study. On a year-on-year basis, the tanker index was down by 4 points, or 2.4%, compared to the 3 points (1.7%) fall the previous year. The bulker index, meanwhile, fell by 4 points, or 2.6%, compared to the 3 points (1.9%) fall recorded in last year’s OpCost. The container ship index was down by 2 points, or 1.3% - identical to the fall recorded for the previous 12 months.

There was a 1.1% overall average decrease in 2018 crew costs, compared to the 2017 figure of 0.1%. Tankers overall experienced a fall of 1.8% on average, compared to the 0.5% fall recorded last year. For bulkers, meanwhile, the overall average fall in crew costs in 2018 was 1.1%, compared to 0.6% recorded for the previous year. Meanwhile, there was zero overall increase in expenditure on crew costs in the container ship sector in 2018. 

Expenditure on stores was down by 4.9% overall, compared to the fall of 3.5% in 2017, with all vessels in all categories recording a fall. In the tanker sector, the most significant fall was the 6.4% posted by Aframax Tankers. Panamax Bulkers and Capesize Bulkers, meanwhile, led the way in the bulker sector.

There was an overall increase in repairs and maintenance costs of 0.6% in 2018, compared to the reduction of 1.7% in 2017. Both categories of chemical tanker posted increases, and there were also significant increases in the container ship sector. In the tanker sector, Suezmax owners spent 2.3% more on repairs and maintenance in 2018 than they did in the previous year. 

The largest overall drop in operating costs in 2018 was the 7.1% fall recorded for insurance, compared to the 4.1% fall in 2017. Ro-Ros were the only category of vessel to record any increase in insurance costs (1.7%).

Richard Greiner, Partner, Shipping & Transport at BDO, says, “This is the seventh successive year-on-year reduction in overall ship operating costs recorded by OpCost, and will doubtless be regarded as good news throughout the industry. The solitary overall increase across all categories of operating costs in 2018, in respect of repairs and maintenance, should also be seen as encouraging because it indicates an ongoing commitment to regulatory compliance, to maintaining safety and protecting the environment, and to continued operation. Moreover, it does nothing to confound the incipient belief that shipping may be displaying signs of a slow recovery to improved profitability. 

“In 2018, as was the case the previous year, the biggest cost reductions were to be found in insurance, reflecting, among other things, the intense competition for business in insurance markets throughout the world. The next biggest level of reductions came, as was again the case in 2017, in the stores category, a trend largely driven by the fall in the cost of lube oils.

“The smallest of the reductions in operating expenditure in 2018 came in the crew costs category, down by just over 1% on the previous year. There are sound reasons to believe that increases of more than 20% in crew costs, which the industry has witnessed in some previous years, are unlikely to be seen for some time. 

“Shipping is used to fluctuations in costs and industry fortunes. For example, OpCost records that, at year-end 2008, the average daily operating cost for a Panamax Bulker was US$6,321; in 2018, it was US$5,472. For a Handysize Product Tanker, the comparable figures are US$7,908 and US$7,285. 

“Shipping confidence is holding up well. It should continue to do so, given a favourable wind and a continuing appetite for investment in an industry which is increasingly embracing technological innovation and environmental awareness. Whilst there remains the need to fund the costs of technological improvements, over time that investment should lead to improved profitability.”

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